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China’s Economy, Steady Now, Seen Slowing in Second Half

Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo
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China’s economic activity likely held steady in July but the outlook for the rest of the year is dimming as the effect of earlier government stimulus wanes, according to a survey of 17 economists by The Wall Street Journal.

The nation’s business activities, from industrial production to investment, will likely slow further in the year’s second half without any fresh government stimulus, the survey said.

“China’s real economic activity may have plateaued last month,” said economists of UBS Securities Asia Ltd..

The economists said China may struggle to reach its goal of raising the gross domestic product by 6.5% to 7% this year. The economy grew 6.7% in the first half, according to the government.

Industrial output, a rough proxy for economic growth, likely grew 6.2% in July from a year earlier, the same as the month before, the survey said. Fixed-asset investment outside rural households, a key gauge of construction activity, likely rose 8.9% for the January to July period. Retail sales were likely little changed from the prior month at 10.5%, the survey said.

At a policy meeting late last month, members of the politburo–the Communist Party’s top decision making body–cautioned against asset bubbles. That suggests policy makers are worried about propping up bubbles in property, securities and commodities, Goldman Sachs economists said.

That means that even with subdued inflation, the central bank will unlikely unleash another round of aggressive monetary easing measures any time soon, such as interest rate cuts, economists have said.

The consumer-price index, a main gauge of inflation, likely rose 1.8% in July from a year earlier, slightly slower than in June, the economists in the survey said. Falling pork prices likely outweighed increases in vegetable prices in July.

One of the biggest concerns among policymakers in recent years has been falling prices among producers. That likely continued to a problem in July. The producer-price index, a gauge of factory gate prices, likely dropped 1.9% from a year earlier in July, the economists said. However, that was a lesser decline than in June. Some economists expect deflation to end by late this year.

A growth in credit will likely slow notably following a binge early this year, survey participants said, due to falling demand for loans and the unlikelihood that the central bank will significantly boost the money supply.

Domestic banks probably issued 825.0 billion yuan ($124.2 billion) in new loans in July, an enormous drop from June’s 1.38 trillion yuan when state-owned banks ramped up lending to spur growth. M2, the broadest measurement of money supply, likely rose 11.0% from a year earlier at the end of July.

A gap between M1–essentially non-financial institutions’ bank deposits– and M2 continued. That suggests businesses are hording their funds rather than investing them due to their lack of confidence in the economy, Mizuho Securities economists said.

Trade of goods with the rest of the world continued to drop, the survey showed.

Outbound shipments likely declined 3.6% in July from a year earlier, though better than June’s drop of 4.8%, as world demand fell. Imports likely dropped by 8.9%, extending June’s 8.4% fall. The trade surplus is likely to have been about the same from a month earlier at $48 billion.